Death and destruction

My analysis of the Ukraine situation has continued to attract criticism. I have been saying for some time that American and NATO strategies are fatally flawed and extremely dangerous. Responding to the latest episode of my podcast, Culture and Value, which was featured recently at The Electric Agora, Daniel Kaufman commented:

"The idea that somehow Ukraine is at fault for the prolonged death and suffering from the war – or those like the US, UK and others who are helping Ukraine – is not only a poor analysis of the situation, it represents what to my mind are really terrible values. Ukraine does not want to surrender. It does not want to hand over part – or all – of its country to Vlad the Impaler and his armies. It does not accept the rape and torture and mass murder that Russia has been inflicting on it. The idea that it should ... in order to satisfy your conception of proper geopolitical order – or that of Russia or any of the other murderocracies and kleptocracies on the planet – is just so out of whack, I don’t even know how to respond to it."

I question some of Dan's assumptions here and naturally reject any suggestion that my values are flawed or my motives tainted. My brief reply to his comment did not deal with Ukraine so much as with what arguably lies at the root of this and certain other international crises (or potential crises): the failure of those currently in power to see and come to terms with a changed geo-strategic environment.

I wrote as follows:

I am not talking about some desired political order. Rather I am noting, as carefully and accurately as I can, current geopolitical and geo-economic realities. I am making the point that the situation has changed over the last thirty years or so and not in ways which favour an overwhelming level of American dominance (such as applied immediately after WW2, and again after the break up of the Soviet Union) in the future.

For example, the US is no longer as economically dominant as it once was. Its share of the global economy has declined from about 40 percent in 1960 to about 24 percent today. This in itself is not necessarily a bad thing but it does mean that a broader range of countries will have a say in reshaping the financial system than was the case, say, in the immediate post-WW2 period.

This is important because economic factors underpin military power. And though the USD is strong at the moment, the widely-acknowledged fragility of the current debt- and derivative-based financial system – a system which creates demand for (and so guarantees the value of) the dollar – strongly suggests that the United States will not be able to continue to play, at least to the same degree, the dominant global role which it has played over the last three-quarters of a century.

Debt and the monetary system; I invest in a gold mining stock

What follows is a modified version of (a part of) a personal email which I sent recently to a friend who had asked about my views on the current economic situation. He is a fan of Andrew Yang. I am not…

I listened (on YouTube) to an interview with Andrew Yang. He is right about jobs and automation but I find him to be very naive on economics. He doesn’t seem to understand money and debt. He talks about America as the richest nation in the history of the world when the country is actually in dire economic straits. The real economy has been hollowed out and ultimately the status and purchasing power of the dollar is at risk.

I agree with Yang that there will not be anywhere near enough jobs in the future. This will inevitably lead to trouble. I don’t pretend to have a solution, but to get to a solution we need to understand economic realities at a deep and basic level.

My friend asked: “[W]hat about other currencies? Are they all fiat, rather than backed by something?”

They are all fiat. Most float; some are pegged to the dollar.

There are a whole bunch of other names I could mention but George Gammon (accessible on YouTube and Twitter) has a good grip on the way the monetary system works. At least he is interested in understanding what is going on and uses evidence and reason and communicates well. It’s not rocket science, but most people can’t be bothered.

On recent monetary history, my understanding is that the petrodollar replaced the gold-backed dollar in the early 1970s. It involved an understanding with the Saudis. Before Nixon was forced to abandon the gold-backed dollar (because France and other countries wanted gold for their dollars and the US had nowhere near enough gold to pay them with), the USD was pegged to gold at $35 an ounce and all other currencies were pegged to the dollar. This was the Bretton Woods system. Since Bretton Woods fell apart you have had the current debt-fuelled system which has now gone completely crazy and exponential.

Gold is now about $1900 an ounce. It’s not so much that gold has gone up in value. It is that the dollar and other currencies have lost value (i.e. purchasing power). Technological advances (especially robotics and AI), debt defaults and current demographics (aging population) are all disinflationary but debt-ridden governments can’t allow deflation because it increases their (and every other debtor’s) debt burden. They have to print more money and create inflation in order just to keep things going. You can see where this is headed.

I have started buying shares in a smallish gold miner (ASX: SBM). I try to base my decisions on research and reason. But there seems nothing wrong with letting sentiment come into it a little. After all, everything is uncertain and there is so much data out there it can be overwhelming. Sometimes sentiment can help push you to act, to take the plunge. After all, nowhere is safe. Staying in cash long term is certainly unwise.

So this is the personal and quite irrelevant detail that helped to get me moving: my father was born at Gwalia, a small Australian gold mining town in a very inhospitable region. Mining eventually became unprofitable and the town was abandoned. However, the Sons of Gwalia mine around which the town had been built – and with which a young Herbert Hoover (future American President) had been directly involved – was reopened and extended and currently represents St Barbara Limited’s chief Australian operation.

The basic numbers for the company look okay to me, though I don’t pretend to have a grasp of the details. Their other two operating mines (both gold mines) are in Nova Scotia and Simberi (an island in the Western Pacific). Currently I am down a few thousand dollars on my investment but am quite optimistic for the medium and longer term. If there are declines in the share price and the fundamentals stay the same, I will be buying more over the next year or so.